How to avoid and deal with software disputes

Being able to utilise and rely on software that suits your business needs is critical for growth. Investments into software are therefore necessary and significant.

However, software disputes are increasingly common, often involving issues such as delays in delivery, inadequate functionalities or features, and non-performance.

Here are our top tips to help reduce the risk of, and deal with, software disputes.

1. Clarify the parties’ obligations in a written contract

A well-drafted agreement with your software provider should set out terms about performance, delivery milestones and any support obligations. If terms are missing or ambiguous, you may be able to rely on implied terms under the Sale of Goods Act 1979. Additionally, when engaging in bespoke software development projects, which can be complex, you should always ensure that the legal framework accommodates the parties’ need for agility by ensuring there are mechanisms to agree amendments and remediate any failures.

2. Express ownership of intellectual property and data

Without clear terms, confusion can arise over who owns the rights to the software, its components, and any bespoke elements added during development or provision. It’s vital to clearly define ownership of all data including the underlying source code, any customisations, data sets, designs, and documentation.

3. Agree delivery milestones and enforce them

Milestones are predefined stages or deliverables that mark significant progress in a project. These operate as contractual checkpoints, assisting both client and developer to track progress, manage expectations, and tie payment and approval to measurable outcomes. Crucially, the contract should set out the consequences for delay or failure to meet milestones including but not limited to financial penalties, right to withhold payment, and an obligation on the developer to direct additional resources to the project.

4. Check whether you need an exclusivity clause

Whilst exclusivity clauses can be useful for software providers, their business clients may want to check whether they want one. These clauses typically require the client to refrain from dealing with competitors for the lifetime of the software contract even when there’s been a breach by the software provider. If the relationship between you and your provider breaks down, you will want to ensure that you are able to discuss issues regarding the software with an alternative provider and plan a smooth transition to them. This is particularly so where such transition requires planning in respect of data migration, how long data can be hosted by original provider, the format of the data to be migrated, costs and timing. A smooth transition is crucial as the efficient functioning of a software is often critical to the day-to-day operations of a business.

5. Engage in early resolution

Given the need to protect the business from not being able to rely on the software, you should promptly raise issues with your provider. You should also attempt resolution through correspondence and negotiation. Mediation and other forms of alternative dispute resolution can be highly effective in software disputes as they allow for flexible solutions that a Court would not ordinarily impose like a revised delivery schedule or ongoing support arrangements.

6. Preserve evidence

It’s essential that you preserve relevant documents and communications with your provider. This may include emails, project timelines, version control logs, and testing reports. Whilst in many claims before the Court, evidence from an IT specialist will be necessary to support or defend claims in Court, you should ensure that there’s someone from your internal IT team who is familiar with the software, its development and provision to you, and any issues you have had with it.

By addressing the above points at the outset, you can reduce the risk of misunderstandings, delays, and disagreements. A well-structured contractual agreement not only protects your business but also arms you with the requisite tools to protect your interests should things go wrong.